401 K & SS
Apr 27th 2006, 3:32 am
#16
Joined: Jun 2003
Posts: 1,109
Re: 401 K & SS
Originally Posted by georgiagal
What happens when we leave the US to our much invested 401K & SS that we'll never benefit from? Anyone had any experience with this?
http://www.ssa.gov/international/Agr...phlets/uk.html
Apr 27th 2006, 3:56 am
#17
Septicity
Joined: May 2004
Posts: 23,762
Re: 401 K & SS
Originally Posted by Giantaxe
Maybe, but I think you're making it more complicated than it actually is. For example, their need for short term capital really isn't directly relevant with what they do with the account: they'd presumably have such a need (or not) regardless of moving. Secondly, predictions for US investments (and exchange rate fluctuations) really don't come into play because there are enough investment vehicles out there that they could invest entirely in Euro- , pound- (or whatever) dominated assets. Heck they could put all their money in a Gold ETF of they so desired 
So, assuming they are moving back to the UK (or a country that taxes non-domestic income in a similar fashion), I think it rationally comes down to US tax implications of withdrawing now as opposed to withdrawing on retirement. And on that basis, I doubt they can "win" by withdrawing now: 10% penalty for early withdrawal plus whatever their marginal tax rate is (and being a non-resident alien when they do the transfer isn't going to help much because they don't get a standard deduction and, iirc, they'll get ordinary income taxed at 30%; they would avoid state tax if they timed it right though). For them to be better off withdrawing now, their marginal tax rate in retirement would have to be significantly higher than 10% plus their current marginal federal tax rate. And the further they are away from retirement, the higher that 'premium' would need to be due to the build up of tax-free gains in the account. Possible, certainly, but unlikely imo.
So, assuming they are moving back to the UK (or a country that taxes non-domestic income in a similar fashion), I think it rationally comes down to US tax implications of withdrawing now as opposed to withdrawing on retirement. And on that basis, I doubt they can "win" by withdrawing now: 10% penalty for early withdrawal plus whatever their marginal tax rate is (and being a non-resident alien when they do the transfer isn't going to help much because they don't get a standard deduction and, iirc, they'll get ordinary income taxed at 30%; they would avoid state tax if they timed it right though). For them to be better off withdrawing now, their marginal tax rate in retirement would have to be significantly higher than 10% plus their current marginal federal tax rate. And the further they are away from retirement, the higher that 'premium' would need to be due to the build up of tax-free gains in the account. Possible, certainly, but unlikely imo.
Financially it probably is better to keep it here -- I agree with your logic. But people don't always make decisions based on this. Can you imagine the hassle of dealing with a US company when you don't live here. It's bad enough when you can listen to their phone waiting system on a 1-800 number. And just getting a document notarized is not an easy task in Bradford or wherever.
My idea was thus: they are currently coming up to a third through the tax year, and if they have high earnings already this year, they may well be paying tax on the money at the higher income rates. If they want to cash in, it might be better to leave it till next year when -- and I'm unsure here -- they could be on lower tax rates if the US only taxes a non-resident, non-citizen on their US earned money.
Apr 27th 2006, 4:14 am
#18
Lost in BE Cyberspace
Joined: Jan 2006
Location: San Francisco
Posts: 12,865
Re: 401 K & SS
Originally Posted by fatbrit
Yep -- even more factors -- we don't know their age. And we also missed out their emotional attachment -- always a big factor!
Financially it probably is better to keep it here -- I agree with your logic. But people don't always make decisions based on this.
Financially it probably is better to keep it here -- I agree with your logic. But people don't always make decisions based on this.
Originally Posted by fatbrit
Can you imagine the hassle of dealing with a US company when you don't live here. It's bad enough when you can listen to their phone waiting system on a 1-800 number. And just getting a document notarized is not an easy task in Bradford or wherever.
Originally Posted by fatbrit
My idea was thus: they are currently coming up to a third through the tax year, and if they have high earnings already this year, they may well be paying tax on the money at the higher income rates. If they want to cash in, it might be better to leave it till next year when -- and I'm unsure here -- they could be on lower tax rates if the US only taxes a non-resident, non-citizen on their US earned money.
Apr 27th 2006, 5:28 am
#19
BE Enthusiast
Joined: Oct 2002
Posts: 875
Re: 401 K & SS
UK citizens can qualify for US SS with less than 40 credits. Can't recall off the top of my head, but I think if you have 24 credits in the US (6 years) you can use UK credits to top it up to the 40. Because of the agreement between US-UK under current terms you will be entitled to be paid the SS even if you reside outside the US. However, you can only use UK credits if you are not claiming a UK pension. Sorry this is a bit fuzzy but I don't have my book with me. It's worth taking a look at the Nolo Press Guide on Social Security as it sets it out cleearly.
Apr 27th 2006, 11:05 am
#20
Forum Regular
Thread Starter
Joined: Feb 2006
Location: Across the pond
Posts: 253
Re: 401 K & SS
Originally Posted by Giantaxe
Maybe, but I think you're making it more complicated than it actually is. For example, their need for short term capital really isn't directly relevant with what they do with the account: they'd presumably have such a need (or not) regardless of moving. Secondly, predictions for US investments (and exchange rate fluctuations) really don't come into play because there are enough investment vehicles out there that they could invest entirely in Euro- , pound- (or whatever) dominated assets. Heck they could put all their money in a Gold ETF of they so desired
So, assuming they are moving back to the UK (or a country that taxes non-domestic income in a similar fashion), I think it rationally comes down to US tax implications of withdrawing now as opposed to withdrawing on retirement. And on that basis, I doubt they can "win" by withdrawing now: 10% penalty for early withdrawal plus whatever their marginal tax rate is (and being a non-resident alien when they do the transfer isn't going to help much because they don't get a standard deduction and, iirc, they'll get ordinary income taxed at 30%; they would avoid state tax if they timed it right though). For them to be better off withdrawing now, their marginal tax rate in retirement would have to be significantly higher than 10% plus their current marginal federal tax rate. And the further they are away from retirement, the higher that 'premium' would need to be due to the build up of tax-free gains in the account. Possible, certainly, but unlikely imo.
So, assuming they are moving back to the UK (or a country that taxes non-domestic income in a similar fashion), I think it rationally comes down to US tax implications of withdrawing now as opposed to withdrawing on retirement. And on that basis, I doubt they can "win" by withdrawing now: 10% penalty for early withdrawal plus whatever their marginal tax rate is (and being a non-resident alien when they do the transfer isn't going to help much because they don't get a standard deduction and, iirc, they'll get ordinary income taxed at 30%; they would avoid state tax if they timed it right though). For them to be better off withdrawing now, their marginal tax rate in retirement would have to be significantly higher than 10% plus their current marginal federal tax rate. And the further they are away from retirement, the higher that 'premium' would need to be due to the build up of tax-free gains in the account. Possible, certainly, but unlikely imo.
So until we get our ducks in a row would it be advisable to suspend payments as we are paying quite a chunk into it still? We are definitely leaving US, probably within the year and our plan is to head to Oz.
